In Play Updates and Reviews, Tuesday, 12/09/2008

Stocks Pull Back on Cue

by James Brown

Play Editor's Note:
As expected the market took a big step back today but some of the individual stock moves were not as deep as we had hoped. The pull back may not be over yet.

CALL Play Updates

Apple Inc - AAPL - close: 100.06 change: +0.34 stop: 88.99

AAPL showed some relative strength today with a rally to $103.60 before finally fading back toward the $100 level. Odds are good the pull back in the market isn't quite over just yet so we're going to stick to our plan with AAPL. More aggressive traders may want to buy calls on AAPL in the $96-95 zone. I am suggesting readers buy calls in the $94.00-92.00 zone. We'll use a stop loss at $88.99, just under Friday's low.

If triggered at $94.00 we have two targets. Our first target is $99.85. Our second target is $107.50.

Picked on December xx at $ xx.xx

Amazon.com - AMZN - close: 51.25 change: -0.16 stop: 43.25

Shares of AMZN also showed relative strength with a rally to $54.48 and a late day bounce from the $50.00 level. We don't see any changes from our previous comments. We will stick to the plan, which is buy calls on a pull back into the $46.00-45.00 zone. Our first (short-term) target is $49.95. Our secondary target is the $54.00 mark. The P&F chart is bullish with a $74 target.

Picked on December xx at $ xx.xx

China Mobile Ltd. - CHL - close: 50.85 change: -2.06 stop: 47.75

CHL endured some profit taking today after a strong, multi-day run up. Shares came close to filling the gap from yesterday. On a positive note the stock failed to break round-number support at $50.00. We're not suggesting new positions at this time. CHL hit our first target at $51.75 yesterday. We still have a secondary, more-aggressive target at $57.00.

Note: I was unable to find an earnings date for CHL, which does raise our risk since we prefer to avoid holding over an earnings report.

Right on cue at the simple 100-dma shares of CMG find resistance. The stock lost more than 6% today. We're still waiting for a dip toward support. Our suggested entry point is to buy calls on a pull back into the $51.00-49.00 zone. Our stop loss is at $48.45. If triggered at $51.00 we have two targets. Our first target is $54.85. Our secondary target is $59.00.

Picked on December xx at $ xx.xx

Express Scripts - ESRX - close: 58.01 change: -2.45 stop: 55.95

The morning rally in ESRX failed at $61.50 and shares plunged to an intraday low of $57.52. The $58.00 level should have been short-term support and it broke today. This should put bullish traders on the defensive. Wait for a good bounce before considering new positions. Our target is $64.00.

FXI gave us another opportunity to exit near $30.00 (actually above $30.00) after the Chinese ETF recovered from its morning gap lower. Eventually the bounce failed as the market moved lower. I am expecting the FXI to fill the gap, which would mean a dip back toward $28.00. Our secondary target is $34.00.

Picked on December 03 at $ 26.27 /gap down entry point
Change since picked: + 2.81 /originally listed at $27.25
Earnings Date 00/00/00
Average Daily Volume = 51.2 million

Goldman Sachs - GS - close: 72.77 change: -4.38 stop: 66.49

Two analyst firms cut their earnings estimates on GS and that helped push shares of the financial firm to a 5.6% loss. The financial sector under performed the market as a group. We're still waiting for GS to trade down toward what should be support near $70.00. The intraday low was $71.56. We are suggesting readers buy calls on a dip into the $71.00-68.00 zone with a stop loss at $66.49. If triggered we have two targets. Our first target is $79.85. Our second target is $89.00 or the 50-dma, whichever one GS hits first. We do not want to hold over the December earnings report. Thus we have four trading days to enter and exit this play.

Picked on December xx at $ xx.xx

Jacobs Engineering - JEC - close: 51.05 change: +2.18 stop: 39.80

The euphoria in JEC lasted another day as shares rallied more than 4%. The stock managed to hit overhead resistance at its 100-dma before paring its gains. I think the stock is poised for a correction before moving higher. We are suggesting readers buy calls on a dip into the $44.00-42.00 zone with a stop loss at $39.80. This is a volatile stock so expect some big intraday swings! If triggered we have two targets. Our first target is $49.90. Our second target is $54.00.

Picked on December xx at $ xx.xx

Priceline.com - PCLN - close: 61.60 change: -2.85 stop: 58.49

PCLN also suffered some profit taking after a strong two-day bounce. Another rebound from the $60.00 region can be used as a new bullish entry point. Our second target is $69.90. FYI: The Point & Figure chart is bullish with a $102 target.

WYNN showed some strength this morning with a rally to $47.15 but it quickly faded and the stock closed with a 6% loss. Our plan is to buy a dip in the $40.25-38.00 zone with a stop loss at $37.25. If triggered we have two targets. Our first target is $44.75. Our second target is $49.00. I would expect some resistance at the 50-dma but the P&F chart has turned bullish with a $62 target.

Picked on December xx at $ xx.xx

PUT Play Updates

*Currently we do not have any put play updates*

Strangle & Spread Play Updates

SPDR GOLD Trust - GLD - close: 76.33 change: +0.14 stop: n/a

The GLD spent most of Tuesday's session trading sideways. Trading sideways is the worst possible result for us. We need to see a real trend develop again and fast! We're quickly running out of time as December options expire in less than two weeks. I am reiterating previous suggestions that more conservative traders cut their losses and exit early.

We are not suggesting new strangle positions in the GLD.

What is a strangle?
A strangle involves buying both an out-of-the-money call and an out-of-the-money put. We don't care what direction the stock goes as long as it moves one direction. If the stock moves far enough one side of our trade will rise in value and pay for the entire trade and make a profit.

-December Strangle-

Summary:
We suggested readers buy the December $75 call (GVD-LW) and the December $70 puts (GVD-XR). Our estimated cost was $6.30. We want to sell if either option hits $12.00.

The S&P 500 index pulled back for a 2.3% decline. The move seems like a normally "correction" or breather for a volatile market. We don't see any changes from our previous comments on the SSO strangle. We have less than two weeks left before December options expire.

We're not suggesting new strangles at this time.

Note: The SSO is an ultra-long ETF that typically moves twice the daily performance of the S&P 500 index.

What is a strangle? It's when a trader buys an out-of-the-money (OTM) call and an OTM put on the same stock. The strategy is neutral. You do not care what direction the stock moves as long as the move is big enough to make your investment profitable.

-December Strangle Details-
We suggested readers buy the December $30.00 call (SOJ-LD) and the December $20.00 put (SOJ-XT). Our estimated cost is $3.75. We want to sell if either option hits $6.00.

Bulls need to be careful with APOL. The stock showed relative weakness today with a 4% loss and a breakdown under its 10-dma. Shares fell toward the bottom edge of its recent trading range. APOL also hit our stop loss at $72.25 closing the play. Seeing this relative weakness on a day that one analyst firm raised their price target on APOL to $87 is worrisome.